When City Hall Wants a Grant: Philanthropy’s Growing Presence in Municipal Governments

City governments strapped for cash have increasingly turned to private funding sources to close gaps and try out new things. That includes institutionalizing fundraising within government, and one striking example is Detroit’s growing development and grants team.

The City of Detroit has coordinated its grantseeking off and on, but a new office formed in 2014 has grown into an effective fundraising squad that brought in $202 million last year, $67 million of which came from private sources. The latter number is up from $39 million just one year before.

Detroit’s 20-person grants team is part of a much larger trend of growing philanthropic support for public services, including the creation of philanthropic liaisons, city-affiliated nonprofit fundraising vehicles, and offices of strategic partnerships. While these efforts allow cities to try out adventurous initiatives and leverage strengths in other sectors, they also invite concern that reliance on private dollars might affect government decision-making and public funding of services in the long term.

Detroit is far from alone in its embrace of private funding sources, and philanthropy has always worked with government at varying levels. Now, the city is stepping things up, offering an interesting case study of how far public officials can get with private fundraising. Detroit has some big-league foundations right in its own backyard, so it's always had a strong philanthropic presence, but city leaders are taking advantage of the national interest in the city’s revitalization to start landing more outside funding. Of 2017’s private support, over 60 percent came from outside the state, up from 31.5 percent the previous year.

Out-of-state outfits JPMorgan Chase, the Kellogg Foundation, the Knight Foundation and Bloomberg Philanthropies have funded in Detroit. Projects have included an in-house innovation team using data analytics to aid city decisions, an affordable housing fund, and various education, arts, and business development initiatives.

The team responsible for the increase in funds itself emerged from a city assessment funded by Ford, Kresge, and the Skillman foundations in the aftermath of Detroit’s rescue from financial crisis. Foundations played a remarkably large role in bringing the city back from bankruptcy. We also recently covered the contributions Kresge and other donors made toward the city’s new streetcar (which has its share of critics). We've also reported that JPMorgan Chase is investing $150 million in Detroit as part of an ambitious philanthropic strategy launched a few years ago to foster equitable growth in struggling urban communities.

As Detroit continues to transform itself, private funding will be tightly woven into the DNA of what comes next. That’s not necessarily a bad thing, and it’s encouraging that local philanthropic players in particular are committed to the city’s future.

In fact, many city governments have been enthusiastic about philanthropic-public partnerships (and even more controversial corporate partnerships) since the recession, and in the face of fiscal pressures related to infrastructure needs and benefits obligations. A variety of mechanisms have emerged to bring in additional money, including independent nonprofits such as Mayor’s Funds, pioneered in New York City. Kalamazoo's new Foundation for Excellence may be the most dramatic example of this trend.

At their best, these partnerships combine strengths across sectors to tackle social problems that can’t be addressed alone. They can also allow boosts of creativity or risk-taking in the halls of government by providing some space for city staff to stretch out. Institutions like Bloomberg and Rockefeller have become champions of the idea that philanthropy can be used to “embolden government.” So on one hand, this is an example of city leaders doing what needs to be done with the options in front of them, and a lot of exciting projects are coming out of these collaborations, from parks to data analysis.

At the same time, there are plenty of reasons to be wary about how relying on private funds for city programs could impact the provision of public services in the long term, especially when the practice becomes a permanent fixture. The larger backdrop, here, is that budgetary pressures on cities are likely to intensify in coming years as underfunded public pension obligations come due. Amid an ongoing urban fiscal crisis, philanthropy is likely to wield growing clout over municipal governance.

Nonprofit scholar Beth Gazley has written about the “Pandora’s box” of potential problems in philanthropy propping up public services, including skewing equitable access and power dynamics in public service decision-making.

Los Angeles Mayor Eric Garcetti has come under fire for his Mayor’s Fund, which some have suggested allows donors and companies to work around campaign finance laws to gain access to city leadership. (There's no evidence that this has actually occurred.) And controversies have arisen regarding private funding for public goods in New York City, including Barry Diller's backing for a new island park in Manhattan. The most well-intentioned funders still have their own agendas and rarely give money without any strings attached. Even if donors are not exerting any influence over programs, city officials or the nonprofits that support City Hall's agenda could easily fall into the trap of chasing funds in areas that interest foundations or wealthy benefactors, thereby impacting which services are well funded. There’s also the concern about the government spending message this sends to decision-makers responsible for collecting taxes and allocating funds.

In the case of Detroit, $67 million in private support is relatively low compared to the city’s $1.91 billion budget that year. The additional funds are no doubt welcomed, as they go toward some important programs in a changing city. The head of the grants office tells Crain’s that the key to sustaining such efforts is “braided funding” that combines multiple sources, while realizing that foundation support won’t be long-term. But the greater presence of fundraising in the City of Detroit looks permanent, or at least long-term, as the office is hiring new staff.

Everyone likes donors when they’re backing things we support and not causing trouble. But as with all things related to philanthropy, it’s important to imagine how such arrangements might go wrong, and how cities might safeguard the public good if they do.

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